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Institutional Investor Activity in California

As heard in reports, activity from institutional investors looms large in California, evidenced by cash sales, which are generally linked to investors. According to ""PropertyRadar"":http://www.propertyradar.com/, cash sales for properties in the Golden State have experienced a dramatic rise since 2008.


From 2001 to 2007, cash sales represented somewhere between 6.2 percent to 8.4 percent of total sales, according to the data and analytics firm. As prices plummeted with the market crash in 2008, cash sales grew to represent 15.9 percent of total sales, eventually reaching 29.2 percent in 2012. As of April, cash sales represented 29.3 percent of sales.

As institutional investor activity continues in the state, PropertyRadar decided to take a look at who these investors are and their purchase patterns.

To rule out smaller and individual investors, PropertyRadar tracked transfers in qualities greater than 10 from a liability corporation (LLC) or limited partnership (LP). Purchases involving single-family homes and condominiums were counted.


Interestingly, the firm reported LLC and LP purchases represented only 5.1 percent of transfer activity in 2012 and 4.5 percent in 2013. However, upon closer examination, PropertyRadar found institutional investor activity was mainly concentrated in certain counties.

For example, in Solano County, LLC and LP purchase activity accounted for 16.1 percent of sales in 2012 and 21.5 percent of sales in 2013.

Sacramento County's LLC and LP activity was the second highest, at 11 percent and 13.9 percent, respectively.

Other counties in the top five were Kern, San Bernardino, and Riverside, where activity from LLCs and LPs ranged from 10.5 percent to 13 percent.

Among the top 10 institutional investors in the state, PropertyRadar also found LLC and LP purchase activity has increased in nine out of the 10 counties so far this year compared to 2012 activity.

According to the firm, The Blackstone Group was the largest purchaser in 2012 and 2013.

Other firms that have led as top purchasers this year included Colony Financial, Waypoint Real Estate Group, Wedgewood Enterprises Corporation.

""Institutional investors have been attracted to the California market by a strong return on investment that rental properties have offered since 2008,"" said Sean O'Toole, founder and CEO of the firm, in a report. ""As prices increase, however, the potential return on new investments decline.""

O'Toole explained that while rising prices will help underwater homeowners, they also ""reduce affordability for homebuyers and the potential returns for investors,"" which could ultimately lead to another hurdle for sales, which has already been impacted by low inventories.

About Author: Esther Cho


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